ABN Amro Bank unveiled a fresh share buyback with the Dutch state participating, as part of its planned sell down in the lender.

The bank said it will repurchase 500 million euros (S$722.5 million) of stock. Net income rose 54 per cent to 545 million euros, beating analyst expectations.

The Amsterdam-headquartered bank said it expects costs, which were higher than forecast in the fourth quarter, to rise to 5.3 billion euros in the current year after it added staff for tech and regulation. It also set a target for return on equity of 9 per cent to 10 per cent for 2026, significantly below the rate achieved last year.

Some of the profit boost in the fourth quarter came from falling credit provisions, a trend that is unlikely to repeat this year, chief financial officer Ferdinand Vaandrager said on Bloomberg TV. 

Rising provisions and higher costs “mean that RoE for this year will be lower,” Vaandrager said.

The new buyback means ABN Amro joins a string of European banks that are paying out billions of euros to shareholders to lift their low valuations after a surge in interest rates fuelled their profits. Yet with rates appearing to have peaked, investors are questioning how banks can continue to grow earnings and whether they face higher defaults as borrowers grapple with rising costs and economic turmoil.

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The Dutch government will receive 200 million euros by participating in ABN Amro’s buyback, according to a separate statement from the state’s investment vehicle.

ABN Amro said net interest income, the difference between what it earns on loans and pays for deposits, fell 4 per cent to 1.50 billion euros from a year earlier. It expects the metric this year to be “broadly in line” with 2023. 

The Dutch lender freed up 83 million euros it had set aside for bad loans, compared with provisions of 32 million euros a year earlier.

Chief executive officer Robert Swaak has pulled ABN Amro out of riskier businesses to focus on retail and corporate banking, while also seeking to draw a line under a series of scandals that have damaged the reputation of Dutch banks.

“ABN Amro delivered a strong annual result,” Swaak said in the release. “The financial results for 2023 were marked by a further recovery of our net interest income due to interest rates turning positive, lower operating costs and impairment releases.”

ABN Amro long maintained one of the highest capital ratios among European banks, reflecting a risk-averse approach after the lender’s precursor had to be rescued by the Dutch government in the financial crisis.

The Dutch lender bought back stock for the first time in 2022 with 500 million euros of repurchases. It conducted a second buyback of the same size last year. BLOOMBERG